The new home sales report is out, and the pundits are making a show of wiping their brows and breathing a sigh of relief. AP was reporting:
Sales of new homes rose in November while the backlog of unsold homes fell for a fourth straight month, providing hope that the serious slump in housing could be ending.
Sales of new single-family homes rose by 3.4 percent last month to a seasonally adjusted annual rate of 1.047 million units, reflecting solid sales increases in every region of the country except the South, the Commerce Department reported Wednesday.
The increase was better than had been expected and offered hope that the steep slide in housing may be starting to bottom out as builders, using a wide array of incentives, begin to make a dent in the record level of unsold homes.
Before we all break out the champagne here though, there are a few things to consider. Here is what this "increase" looks like: [data from National Assn. of Homebuilders]
According to the report from the Census Bureau:
Sales of new one-family houses in November 2006 were at a seasonally adjusted annual rate of 1,047,000,
according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and
Urban Development. This is 3.4 percent (±12.9%)* above the revised October rate of 1,013,000, but is 15.3
percent (±13.1%) below the November 2005 estimate of 1,236,000.
The median sales price of new houses sold in November 2006 was $251,700; the average sales price was
$294,900. The seasonally adjusted estimate of new houses for sale at the end of November was 545,000. This
represents a supply of 6.3 months at the current sales rate.
We can see a couple of problems here with the sales numbers. Even Lereah advises people to ignore month-to-month (MOM) variation- the more important trend is the year-over-year (YOY), which is DOWN 15.3%. The other thing we have to consider when looking at sales numbers is that little "±" symbol. What that "±" means is when you don’t count everything, but "sample" the population (which they did), you have to give a "margin of error." That means "Here’s what we think the number is, but it could be between this number and that one." So the possible range for the MOM with a "±12.9%" is actually between -9.5% and 16.3%. In a nice analysis of the new home sales numbers, The Big Picture states, "Anytime your margin of error is greater than the estimated increase in New Home sales, confidence levels in that data are low to non-existent." In less technical terms that means this result is not worth the paper it’s printed on.
Let’s move on to that inventory "improvement." According to Bob Willis in a Bloomberg report:
The number of homes for sale fell to a seasonally adjusted 545,000 during the month from 558,000 the prior month. The supply of homes at the current sales rate dropped to 6.3 months’ worth from 6.7 months’ worth in October.
Remember, this number is an estimate. Willis also quotes Kevin Logan, chief markets economist at Dresdner Kleinwort in New York.
Building permits in November fell to a 1.506 million-unit pace, the lowest in nine years, the Commerce Department reported Dec. 19.
The number of new homes available is close to a record. They have averaged 555,000 this year through October, compared with 351,000 during the past 10 years, according to government figures.
Existing home sales inventories are also near a record, averaging 3.515 million this year. Cancellations of purchase contracts, which aren’t counted in the government’s numbers, have mounted.
“That’s growing,” said Logan. ``There is even more inventory than actual inventory numbers suggest.”
And as for the median price?
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When you consider that these numbers are not adjusted for inflation, and that incentives and kickbacks are disguising the actual selling price, it is apparent that the median sale price for November is in fact overstated.
A better indicator here may be the mortgage applications:
While some analysts saw the data as a sign of growing health in the housing sector, others urged caution in light of another report showing a slip in mortgage applications.
The Mortgage Bankers Association said mortgage applications fell last week by 14.2 percent to their lowest level since early August.
"You still have a significant supply and there’s still a long way for that to work through the market," said Benjamin Halliburton, managing director of Traditional Capital Management in Summit, New Jersey.
"We’re definitely not out of the woods," he said.
Kudos to Haliburton- it’s refreshing to hear someone making sense. We are not only not out of the woods, we’re headed right into them.
Atta girl! You aught to take New Years Day off. Was the October revision an improvement over the previous Oct. estimate? I hate to say it but your YOY sales chart does look a little, just a little, like dancing on the bottom. If feb. and march 07 show similar, further YOY reductions I may join John in the golden bunker..now thats a scary thought. Thanks for the effort.
My apologies guys. I just realized I had last month’s new home price chart in the post (that’s why I usually change color schemes- to avoid that mistake) The updated chart is up now.
Calculated Risk did a nice job looking at the new sales numbers.
On sales:
On prices:
Calculated Risk goes on in a followup post to discuss how the current sales drop looks rather like the decrease at the stop of the 1990’s housing bust.
Great work Twist! I knew you’d come through and show these numbers for the fiction they are.
I’m quickly starting to realize, however, that reading all of the linked sidebars and blogs is starting to make me a little crazy. I’m going to scream if I read one more story telling me there’s no bubble — and if there is, it doesn’t apply to City X because of Reasons Y and Z, as in today’s Pennsylvania sidebar.
Perhaps I’ll have to limit my online housing blogging to once a month, because this day-to-day tug and pull between the lying NAR and the real world is so disheartening.
I believe the housing collapse is already in the cards — it’s built right into the system — and there’s no changing that course now. It’s too late. The foreclosures are going to come, and if the ecomony gets even a little worse, or interest rates rise, we’re going to see a serious recession.
But it’s going to take so long to play out, HD will still be around if I take a little break.
Cheers!
Judge-
I can take the spin- it’s a tolerance you have to develop if you want to watch Bloomberg or MSNBC very long. I can take the dismal numbers- those just turn into an academic exercise. The toughest thing is dealing with the stories behind the numbers, knowing that they represent real people getting hurt.
The fun part of doing this though, is the emails where people tell me that our info helped them make a wiser financial decision. When I see reports like today’s, I just strap on my rusty armor and charge at the windmill- and hope it makes a difference.
I’m hoping putting up silly articles like the PA will help people see how silly the “too special to fall” argument is. We all live somewhere “special.”
Take a break- but we hope you don’t stay away too long. All your links and comments are appreciated. (And you wouldn’t want to miss an episode of “How the Bubble Turns.” : )
Judge & Twist -
It’s late here, but speaking of silliness I need to share this one before I pack it in.
“Housing bubble had a slow leak in 2006″, interview (audio & transcript), Bob Moon with Tess Vigeland, Marketplace (American Public Media), December 27, 2006.
Oh, whew! What a relief! The worst is behind us now.
Twist in comment 3 I think you mean “start of the 1990″ rather than “stop”. Your right, CR did a great job also.